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Hedge funds' hefty management fees tend to come with an implicit promise: We're worth the extra cost. But the strategies some are calling the "poor man's hedge fund" lately have been beating the average hedge fund at a far lower cost, and doing it by ripping off famous fund managers' stock picks. The copycats—a pair of year-old exchange-traded funds—are raising a good question: Are hedge funds really worth it?

Hedge-fund stock picks predictably tend to plunge during bear markets: The most heavily owned picks fell 47% in a single quarter during the financial crisis, according to Goldman Sachs' equity strategists. But they're often a great bet when bulls are running: Goldman's research suggests a staggering 373% return for any investor assiduous enough to have owned all those stocks heavily favored by hedge funds since 2001.

GIMMICK OR NOT, the question these ETFs raise is the right one: Just what is the real source of hedge-fund returns? Mazin Jadallah, manager of the AlphaClone fund, argues plain old stock-picking—not shorting stocks or other complex strategies talked up by pricey fund managers—ultimately drives performance. "If you don't have a good short story, it's tough to do the '20' part of 'two and twenty,' " he argues. An expensive fund manager has to come up with a rationale of one sort or another. It's been four years since the average equity-focused hedge fund beat the stock market. Over time, high fees, human error, and the sheer difficulty of beating the market add up.

The lesson of simplicity also applies within the ETF market, however. The AlphaClone and Global X ETFs charge 0.95% and 0.75%, respectively, for returns that, in their short history, aren't so different from the
SPDR S&P 500SPY -0.1517882553837397%SPDR S&P 500 ETF TrustU.S.: NYSE Arca210.5
-0.32-0.1517882553837397%
/Date(1438379513889-0500)/
Volume (Delayed 15m)
:
91793648AFTER HOURS210.45
-0.05-0.023752969121140142%
Volume (Delayed 15m)
:
P/E Ratio
N/AMarket Cap
N/A
Dividend Yield
1.9573776722090261% Rev. per Employee
N/AMore quote details and news »SPYinYour ValueYour ChangeShort position
ETF (SPY) and more-concentrated portfolios. The performance edge of the Global X fund—it's ahead 22% year-to-date—might turn around quickly in a bear market, since there's no hedge. The costlier AlphaClone fund is built to shift half its portfolio to an inverse ETF when the S&P 500 ends a month at a level below its 200-day moving average. So if you're sold on the idea, this one at least might protect you from a steep selloff.

A worrywart investor might instead simply buy the SPDR S&P 500 ETF, which charges a negligible 0.09%, and take a cue from AlphaClone: Cut back your stock-market exposure when the technical signals warrant. In that case, you wouldn't even need a view on the merits of hedge-fund stock-picking, and you'd be taking your investing future into your own hands.